Using a Charitable Remainder Trust in Your Estate Plan

A charitable remainder trust (CRT) is a practical way of providing for yourself or a beneficiary during your lifetime and making a valuable contribution to a charitable organization upon your death. To ensure that the trust will operate as you intend, the document creating the CRT must be carefully written, typically in collaboration with your lawyer and financial advisor.

A CRT is an irrevocable trust into which you transfer stock or other assets. Irrevocable means the trust cannot be changed or terminated. You give up control of the assets placed in the CRT, which removes them from your estate and potentially results in tax benefits. The trustee of the CRT sells the assets and invests the sale proceeds in other assets that then produce income. You and/or other named beneficiaries receive income from the trust for life. Upon the death of all beneficiaries, the remainder of the assets are given to the charitable organizations you have designated.

There are two types of CRTS: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). They both result in gifts to charities when the lives of the beneficiaries end, but there are two crucial differences between CRATS and CRUTS:

• Additional contributions — CRUTs allow you to add more assets to the trust later, in the event that the trust fund gets low. CRATs do not allow for additional contributions.
• Fixed or adjustable payments — CRATs provide beneficiaries with a fixed payment each year (annuity) based on a percentage of assets in the trust. The annuity amount must be at least 5 percent per year. By contrast, the assets in a CRUT are revalued every year and your income will go up or down based on the assets’ market performance.

Whether you choose a CRAT or CRUT, there are several benefits to charitable remainder trusts. For one, you may be able to take a charitable deduction in the year that you transfer assets to the trust, thereby reducing your income tax. Additionally, the asset is removed from your estate, so its value is not included in either the federal or state estate tax calculation.

Another benefit of a CRT is asset flexibility. You can transfer many different types of assets into the trust, such as stocks, real estate, art, jewelry, cars and other items of value. Ideally, the assets you transfer should be assets that have appreciated as this will result in the most tax benefit. Consulting with an experienced trust and estates lawyer can help you use CRTs to maximum advantage.

Gesmonde, Pietrosimone & Sgrignari, L.L.C. advises clients on making charitable remainder trusts part of their estate planning. We work with financial and tax professionals to get the best possible result for you. To arrange a consultation about your estate plan, please call 203-745-0942 or contact us online. We have offices in Hamden and East Haven for your convenience.